Millenials and Gen Z take out most investor loans as rentvesting steps up
More than 50 per cent of property investment purchases in the past year were made by millennials and Gen Z, according to Commonwealth Bank data.
This strategy allows buyers to purchase an investment property in an affordable area while continuing to rent in their preferred location - maintaining lifestyle while building equity.
Ray White chief economist Nerida Conisbee said that the rise of rentvesting came as the traditional path of saving for a deposit while living at home, then buying in the same city where you work, has become increasingly unviable.
Her research found that only 55 per cent of millennials aged between 25-39 own their home, compared to 70 per cent of baby boomers at the same age in 1991 and 65 per cent of Gen X in 2006.
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"This dramatic shift reflects more than just affordability challenges - it represents a fundamental change in how young Australians must approach homeownership," she said.
Foot on the ladder
Rentvesting was the approach that 30-year-old Lydia Burgess and her partner, also 30, took to get a foot on the property ladder.
The Sunshine Coast-based couple snapped up their first property in the Brisbane suburb of Stafford Heights, and plan to rent out the three-bedroom house.
"We were kind of serious about buying a few years ago, but didn't do anything about it and have seen prices then just skyrocket in Brisbane since COVID," said Ms Burgess.
While she said they will return to live in the house one day, rentvesting the property was a way to get into a home before prices rose even further.
"We can't afford to not rent it out," she said.
Rentvesting had also become more common amongst her circle to get into the property market.
"I can see benefits for rentvesting in the long term, particularly for your first purchase," she said.
Ray White Wilston agent Holly Bowden, who sold the Stafford Heights home, said she was seeing more rentvestors come to the market, with renovated, ready-to-rent properties a popular choice.
"Investors want move-in ready and ready to rent places," she said.
Two ways to profit
There are two approaches when it comes to rentvesting according to Ms Conisbee.
Buyers can look for properties and areas that offer capital gains or a high rental yield.
In the case of capital gains it means buying a property that will go up in value and therefore put you ahead.
"The objective is straightforward: when it comes time to sell, the difference between purchase and sale price helps bridge the gap between your budget and your desired home price," Ms Conisbee reports.
She notes that capital gains investors typically target suburbs at the beginning of medium-term appreciation cycles.
Current market conditions favour areas experiencing population growth, infrastructure development, or economic transformation.
The other approach is a high rental yield strategy, that is buy a property that offers a good return on rent for what you paid.
"This strategy appeals to investors preferring reliable income streams and those wanting to use additional cash flow to accelerate their savings for future property purchases," Ms Conisbee notes.
"High-yield properties typically exist in regional centres, areas with specific employment anchors, or locations where housing demand exceeds supply."
Flexible living
There are other advantages to rentvesting a first property buy.
Rather than being anchored to one location by a mortgage, rentvestors can relocate for career opportunities while maintaining their investment portfolio.
The psychological pressure of homeownership - being responsible for every repair, rate rise, and market fluctuation on your primary residence - is also reduced.
Investor loans and tax breaks also offer advantages.
"The financial mechanics work particularly well in Australia's current market conditions," Ms Conisbee notes.
"Investment property loans, while requiring higher deposits and carrying slightly higher interest rates, offer significant tax advantages through negative gearing and depreciation benefits.
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